Compare Home Equity Loans vs. Home Equity Line Of Credit

Home Equity Loan vs Home Equity Line Of Credit

Many people confuse a home-equity line of credit with a home-equity loan. With so many different kinds of loans it can get confusing. So lets look at the difference so you can get a better understanding of what works best for you.

Home Equity Line Of Credit

Home-equity lines have experienced unprecedented growth in the past two years and presently represent 80 percent of the home-equity market.

A home-equity line of credit is a varible interest rate loan that works like a credit card. You get a pre-determined loan amount that is secured by your home.

Most come with checks and credit cards that you can use to draw on as you need the money.

Most lenders only require an interest only payment for either 10 or 15 years. After that the loan must be paid in full. The reality is most people will sell their home and pay the loan off before it actually comes due. You could always refinance if you decide you want to stay in your home.

An important thing to remember on a home-equity line of credit is it is based on varible interest rates. These varible rates will cause your payment to change as the interest rates move up or down.

Home Equity Loan

A home-equity loan has a fixed interest rate and fixed payment. These loans are more like a standard second loan on your home. Like a home-equity line of credit, these loans are also secured by your home.

You borrow a certain amount of money for a specific period and get the whole sum at the close of the loan. The payments a on home-equity loan are typically based on 10 to 15 years and are level.

People who aren't comfortable with an adjustable or varible rate payment tend to favor a home-equity loan instead of a home-equity line of credit. As interest rates rise, these loans become more popular than home-equity lines of credit.

A home-equity loan will have a higher interest rate because it is fixed. Varible rate loans usually have lower starting interest rates. But if interest rates are rising, a varible rate could catch up or even get higher than what the fixed rate is.

About The Author

Gary Gresham is a mortgage loan officer and the webmaster for http://www.1stopshoppingonline.com. He offers you purchase, refinance, debt consolidation or home equity loans at competitive rates at http://www.1stopshoppingonline.com/home-loan.html

Gary@1stopshoppingonline.com

Home Equity Loans vs Home Equity Line Of Credit - Which Option Should You Choose?

Tapping into your home equity loans qualifies you for low rates with the potential benefit of tax write offs. Lenders have developed a number of financing solutions for you, each with their own pros and cons. Home equity loans provide low rates with some closing costs. On the other hand, a home equity line of credit waives closing costs and application fees for flexible lending amounts at slightly higher rates.

Benefits Of A Home Equity Loan

For those wanting to borrow a large amount for several years, a home equity loan provides the cheapest financing. By paying closing costs, you can lock in a low fixed or adjustable rate. You also can select terms that help you get you a reasonable monthly payment.

Home equity loans usually don't have any limit balances, early payment, or annual fees. Structured like a regular mortgages, interest is primarily paid at the beginning of the loan period.

Benefits Of A Home Equity Line Of Credit

With a home equity line of credit you can borrow amounts when you need to with an issued credit card. With a predetermined credit limit, you have flexibility of when you can draw on funds. So you can pay off the balance one month, and then borrow a thousand the next.

Interest is only paid on the amount you borrow. Usually, the minimum payment is only the interest charged for that month. Most lenders also offer the option of converting your line of credit into a second mortgage when you are ready to make regular payments.

A line of credit doesn't usually have any application fees. But there may be fees for carry a minimum balance or closing the account early.

Choosing The Right Equity Financing

Home equity loans are designed for large lump sum payments, used to pay off credit card debt or pay for a remodel project. Terms extend for several years to make the loan payments manageable.

Home equity line of credit is best for short term financing. Interest payments can be kept to a minimum by paying off balances early. Opening a line of credit also gives you the option of available credit without having to pay large applications fees.

No matter which type of financing you settle on, make sure you compare several lenders to get the best deal on rates and fees.

About the Author:

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